All Forum Posts by: Michael Gansberg

@Natalia Avalos - I think you're doing fine. These two pictures popped up via a text from management this AM, followed by, "Call me."

We were cutting a hole in the roof to provide roof access for a company installing a TPO(thermoplastic olefin) roof(that's gonna cost $20k.) When cutting the hole, we found that there'd been a fire in the past and a prior owner put in structural supports under the roof, so we won't be able to provide roof access to the roofing company and they'll have to use ladders. So with some hard work and good luck, you may graduate to the kind of expenses I see on a daily basis 😄

@Benjamin Manibog - why don't you spend the $15k to create your own education program? Here's what you could do- use it for a down payment on a single-family or duplex(in many areas of the country that's enough for a down payment,) then operate the property. You may do a little worse than if you had a pro telling you all the secrets, but you shouldn't do much worse. Plus, instead of keeping half the "earnings,"(how do they define earnings, btw? In real estate, that can be complicated) you'll get to keep all the earnings. Or at least what's left after the manager has taken a small cut.

Most importantly, you'll learn by doing rather than by being told what to do. You don't need to be a genius to succeed in real estate. Hard work and people skills will carry you further than intellect in this industry.

@Chris Phillips - I'll start with a Yogi Berra quote: "If you come to a fork in the road, take it."

In this case, I don't think finances should be the main factor. It should be happiness. If these are the two main choices you have- Path 1 and Path 2- why not play a game with your wife about the decision? Each of you should rank each path on a happiness scale of 1-10, 10 being the happiest(on a piece of paper while the other isn't looking!) Then, compare the sums- so if you each put an '8' on the 2nd path, and there's a '6' and a '7' on the first path, the second path would win with a score of 16.

Happiness should always come before money. If she's happier in South Carolina, she'll be a more effective real estate agent. And Charleston is the bomb. Plus, you could move to South Carolina(or anywhere,) and still use the proceeds from the sale of your house to invest in Pittsburgh(or anywhere.) I took the below picture in Kiawah(near Charleston.) Biking on the beach- it's having your cake and eating it too.

@Katie Sorensen - it sounds like since the non-electric utilities(heating, water, sewer,) are not separately metered, your PM realized it would be unlawful to charge the tenants for utilities. For example- if tenant A kept the heat at 68 degrees and tenant B kept it at 72 degrees, how much would each tenant owe? It would be impossible to figure it out if heat isn't separately metered.

Some suggest RUBS, I'm opposed to the idea(though I have yet to try it, but I'm a bit of a stubborn mule.) In your situation, the right idea would've been to market the units with heat/hot water/sewer included, and factor those utilities into the rental rate. My units with utilities included certainly rent for more money. However, once you've written the leases and taken deposits, going back is challenging and probably not worth it. 

It's possible the management adjusted the rental rates to account for certain utilities being included- if that's the case, your tenants' higher rental amounts may render this whole situation moot. If it wasn't accounted for- hoo-boy, I'd be steaming mad too!

@James Wise - I've been there, I feel your pain. It can be rough- one of my three family homes was raided the day after Christmas, 9 years ago. Of course it was a super cold day in the Northeast(low single digits and windy,) and a no-knock warrant was executed- they broke down the door, and dragged out two out of the three tenants(the upstairs neighbor had been roped into the dealing operation.) The door wasn't the main problem- someone left a window open, so by the time management got there the next day, the whole house was frozen solid. Oy ve. 

Management felt kind of guilty about it- so after much thawing, some burst pipes, floor replacement, etc., my whole bill was only $1500 or so, then some vacancy for a month or two in each unit. I'm one of those analytical types, and I left this occurrence out of my proforma when I bought the house in 2003. Silly me!

Fascinating situation, @Jonathan A. I agree with other posters that being a GC and the lead investor creates the possibility for conflicts of interest. However, you did come in on budget(and on time I hope/assume?) Your partners can’t now whine that they overpaid, they had ample opportunity to seek other quotes.

By seeking other quotes after the work has been done, they’re looking for a second bite at the apple. Who’s to say that the GC offering a $100k cheaper job would’ve actually been able to accomplish it at that reduced price? It could be a lowball quote, or a fly-by-night who would vanish after the deposit check clears. 

In litigation, everyone will lose(except the lawyers!) Suggest binding mediation to your partners, that might save everybody a good amount of money. Good luck,

MG

@Matthew McNeil - I personally wouldn't invest on the sole premise of future appreciation. In theory, it sounds great- with zero cash flow, all appreciation is tax-deferred, and all appreciation can compound without those pesky taxes. But in practice, the investor who does this is making a prediction about property values at some great distance into the future- when he/she sells the property. 

Predicting cash flow is harder than most people think- but predicting real estate prices ten or twenty years hence? Who knows if politicians in the future will abolish the mortgage interest deduction? It's unlikely, but it's possible. Or what if we have another 2008-style collapse right before the investor wishes to sell? Or what if global warming/wildfires are worse than predicted, or a major employer leaves the area(think Kodak/Rochester, car manufacturers/Detroit, etc.) Or what if some moronic narcissistic imbecile decides to blow up the planet, now that that ability has been concentrated into the small hands of so few? The further into the future you go, the more what-ifs you must contend with. I'll quote Yogi Berra - it's tough to make predictions, especially when they're about the future.

Predicting cash flow in the near-term is easier- there will always be shocks(I'm installing two emergency roofs this week! And I had a tenant who basically annihilated her apartment, so I just spent 30% as much fixing that apartment as I spent buying the whole damn house. And I was able to mortgage the house, but the repair costs? Definitely not.) But still, I'll take a bird in the hand over two in the bush any day. 

@Brian Ellis - you're getting lucky on this one. In my experience, if you provide a washer/dryer, you're also required to service them, and that is usually a hassle. If you only provide a W/D hookup, then any issues with the W/D are on the future tenant who will bring in their own equipment(and thus be required to service it.)

@Paul Bergagna - sounds like you have some great options available. I don't know how it will affect resale value, but since you would still have garage space in the primary home, the functionality of the home will only be improved. You could airBnB it and use it as personal office space when it's not rented out(assuming the town allows airBnB.) I'd configure it as a 1 bedroom with an open floor plan to allow for a spacious-feeling office area.

My wife and I are considering buying into a situation like that in upstate New York or Connecticut- we like the idea of an accessory dwelling unit where we could go to conduct business(she's in interior design, I'm in real estate primarily.) We're both loud on the phone, and it's a luxury to have a completely separate space. 

Why not estimate that you'll receive 50% to 100% of the cash invested on the back end when you sell? And if the rental income is still compelling, considering the worst case scenario of 50% back, then move ahead with it.

@Tom R. - I call myself a lottery ticket miner. My wife knows how much I dislike when she plays the lottery(it's not the wasted $2, it's the wasted time.) But she often hides the ticket in a pile of papers when she realizes she hasn't won untold millions. I have a sharp eye- I find it and check it. She'll win $2 or $4 dollars now and again, but she considers it not worth her time to go to the store to claim such paltry sums. So I'm left doing the dirty work 🤷🏻♂️😢

@Bill F. and Adam Odom, I'm calling double-shenanigans. Love it when math rears its pretty head on BP, but Bill, being an Oscar winner and being murdered are probably not independent events, as being in the public eye tends to attract some nutters. However, I'm sure to a first approximation, that equation is pretty accurate in this case.